A competitive firm maximizes profit at the output level where
a. marginal revenue exceeds marginal cost by the greatest amount.
b. marginal revenue is equal to marginal cost.
c. average total cost equals marginal cost
d. price minus average total cost is the largest.
Answer: b. marginal revenue is equal to marginal cost.
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In formulating fiscal policy it is necessary to specify the amount of the desired AD shift.
Answer the following statement true (T) or false (F)
If Japan has a trade surplus and the United States has a trade deficit, the trade gap could be eliminated by:
A. expansionary monetary policy in both Japan and the United States. B. expansionary monetary policy in Japan or contractionary monetary policy in the United States. C. contractionary monetary policy in both Japan and the United States. D. contractionary monetary policy in Japan or expansionary monetary policy in the United States.
Refer to the graph shown. If consumers have a $15 co-pay, total expenditure on the product by both the third party and the consumer will equal:
A. $125. B. $1,125. C. $750. D. $375.
Which of the following factors might explain why the long-run equilibrium number of firms can in some instances exceed the socially optimal number?
a. The appropriability effect (the increase in consumers surplus following entry is not "appropriated" by entrants). b. The feedback effect (an increase in the number of firms increases the competitiveness of the market). c. The business-stealing effect (entry reduces rival firms' profits, a social loss that entrants do not account for). d. The ratchet effect (the more profits the entrants earn, the more the stockholders expect them to earn in the future).